Shark Tank, Dragons’ Den, Lion’s Mouth: these are the kinds of brutal, carnivorous images the media has come to associate with the “investor meeting” (rejected spin-offs include Polar Bear’s Igloo, Chupacabra’s Jacuzzi, and Sarlacc’s Pit).
While an initial meeting with an investor should never be taken lightly, approaching the event with your teeth bared is no way to begin what could very well be a fruitful, long-term relationship.
Meeting with an investor is a meeting of minds, not a battle of warriors. Yes, the entrepreneur’s objective is to win the investor over, and the investor’s objective is to evaluate the entrepreneur’s product – and the entrepreneur himself – but the two parties are also there to learn about each other, to discuss innovation and growth, to make advances to an industry the entire room is passionate about.
To make the most out of this meeting, consider the following advice.
1. Do Your Homework
“More than half of the companies that approach [our firm] are not suitable for funding based on the parameters we talk about on our website.” – Blair Garrou, founder and partner at the Mercury Fund venture capital firm.
Garrou has met with numerous entrepreneurs, and he’s found that too many spend all their time on their pitch and not enough time on the easiest task of all: researching the firm they’re pitching to.
While most VCs share a common mission (invest in and help build great companies), every VC maintains a unique identity. One firm may differ from another when it comes to the sectors they invest in, which stages they invest in, or what size checks they write.
Not understanding these differences can get you into trouble. If an entrepreneur neglects to research the investor they’re pitching to, he or she might wind up sending a business plan for a mobile dating app to a VC that only works with biotech software.
Sometimes these oversights will show themselves during the initial correspondence, and there won’t be a meeting at all. Other times they can slip through the cracks, but when they do emerge – and they absolutely will – you will likely be sitting across from the very person whose time you’re now wasting.
“Taking 10–20 minutes to research a VC’s website in advance will save you some painful surprises down the road,” Garrou says.
To familiarize yourself with a particular VC, start by studying their current portfolio to gain a sense of their segment focus. Read interviews with the investors to understand what drives their decisions. Consult your network for anyone who has crossed paths with the VC and score some intel. The more you know about them, the better.
2. A Pitch Deck in Advance Helps the Relationship
“As an entrepreneur, you probably thrive on surprises. VCs, on the other hand, don’t like them at all.” – Blair Garrou
A pitch deck is a short presentation that entrepreneurs use to provide the investor an overview of their business plan, and it’s typically executed during the initial meeting. It is one of the most crucial components to this meeting, and because it is so crucial, many entrepreneurs prefer to keep it under wraps until the meeting itself. The reasoning here is that if they provide it ahead of time, the investor may have all the information they need to say “no”.
What the entrepreneur is overlooking is the fact that this meeting is also about developing a relationship. By providing the pitch deck beforehand, you’re giving the investor the opportunity to familiarize themselves with the nuts and bolts of your business plan. Now during the meeting, you can spend less time explaining the nuts and bolts and more time establishing a rapport, and discussing the big picture.
“The goal is to get the VC educated before the call, so that you can engage in much more meaningful discussions,” Garrou says.
3. Prove Your Competitive Advantage
“Show me that you are doing something substantially different. If it’s not different, why will anyone get it from you?” – Yoram Solomon, Early Stage Investor
Whether you’re offering a unique product, or a unique spin on a product, simply claiming uniqueness isn’t enough. When meeting with an investor, you need to prove this uniqueness by providing evidence of your competitive advantage.
Explain to the investor how you will deliver value to a specific market. Show them there is a significant market segment that will value your product, service, process, or business model (for the sake of brevity, let’s make that an acronym – PSPBM) over the competition. Make it clear why the competition won’t be able to compete with your PSPBM.
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Maybe you have patents. Perhaps your team offers 50 years of combined experience. Maybe you’ve invented a cutting-edge piece of technology.
Once you’ve proved your competitive advantage, ensure the investor of their return on investment (ROI). Explain how your customers will make money by using your PSPBM, how your company will make money off the customer, and how the VC will make money off your company. Everyone must benefit from each other.
By the way, when I say prove, I mean prove with data. If your company is claiming 40 percent year-over-year growth, the VC will want to see the numbers. If you’re talking up your company’s incredible sales funnel, back it up with hard metrics.
Furthermore, VCs get excited by startups that can prove their business runs upon data (market data, customer web funnel data, sales CRM data, customer usage data, etc.) Support your claims with hard data, and prove to the investor you’re data-driven.
4. Anticipate the Most Important Questions
“Think of the toughest questions you would ask yourself, and try to find the most honest and persuasive answers.” – Igor Shoifot, Partner at the VC firm TMT Investments
Fumbling over an answer is the last thing you want to do during an investor meeting. It can indicate that you didn’t do enough prep, that your business plan has holes, or that you’re trying to pull one over on the investor.
Anticipating these questions will go a long way in cultivating a solid relationship with the VC. While we have already discussed some of these questions above (competitive advantage, ROI, significant market segment), here are a few more, courtesy of Mr. Shoifot:
- How exactly are you planning to scale your current business?
- What are the main growth drivers?
- How are you going to use new resources (money, people, connections) to grow faster?
Shoifot also heralds honesty above all else.
“Do not try to second-guess what answers or views are currently favored by investors. Don’t be afraid of defending your views if you really believe them.”
Telling the investor what you think they want to hear devalues your business and your integrity. So be honest, and be true to your beliefs. And if you’re truly stumped, saying “I don’t know” earns you more brownie points than dodging the question.
5. Focus On Growth
”The ability to scale is key.” Igor Shoifot
You may have the perfect product, but investors need more than a product, they need a growth strategy. If you have a growth strategy, great! Make sure to bring it up in the meeting. If you lack a growth strategy, boo! Develop one pronto.
Shoifot’s recalls one entrepreneur who really impressed him by outlining a comprehensive plan to scale during their initial meeting.
“When we met with the CEO of ScentBird, she amazed us with such a perfect understanding of growth, such a clear plan for scaling, and such a brilliant knowledge of all stats and details related to her business. An investment decision was made in a matter of minutes. We invested, and we will invest again.”
Meeting with an investor can be an intimidating prospect, but if you walk in amply prepared, at the very least you will walk out having left a good impression. Do your homework and plan for the most important questions. Provide a pitch deck in advance and assemble a compelling body of data-backed evidence to prove your competitive advantage. And always, always come equipped with a realistic growth strategy.
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